What Ramaphosa Is Doing to Fix South Africa's State Companies
(Bloomberg) -- South Africa’s biggest state companies have been plagued by mismanagement, cash shortages and corruption scandals for years, leaving them in financial strain and posing an acute risk to the nation’s finances.
The rot largely set in during the leadership of President Jacob Zuma, who stands accused by opposition parties and anti-corruption groups of appointing unqualified allies to key posts and allowing members of the Gupta family, who did business with one of his sons, to loot state coffers. They all deny wrongdoing.
Faced with a loss of voter support, the ruling African National Congress forced Zuma to quit in February and replaced him with the party’s new leader, Cyril Ramaphosa, who together with his public enterprises minister, Pravin Gordhan, moved swiftly to try put the companies back on track.
This is the state of play at the main state entities:
Eskom Holdings SOC Ltd.
The state power utility has been mired in a series of scandals, including allegations of corruption linked to the Guptas and their allies, and has swung from being unable to generate sufficient electricity to supply Africa’s most-industrialized to economy to having excess capacity. It’s currently battling to secure enough coal for its power plants and raise sufficient funding to meet its operating needs after a string of credit-rating downgrades.
Ramaphosa has overseen the installation of a new board at Eskom, now chaired by respected businessman Jabu Mabuza. Phakamani Hadebe, a former National Treasury official, was named interim chief executive officer. Several officials implicated in the scandals have quit, been suspended or fired.
The company says its replenishing coal stocks and fears of blackouts are unfounded. It intends to recoup pilfered funds, reduce its bloated workforce and sell non-core assets to cut debt.
Transnet SOC Ltd.
The freight rail, port and pipelines operator has also been accused of doing questionable deals with the Guptas and their allies, enabling them to earn massive kickbacks on a locomotives deal.
Gordhan this month announced that Chairwoman Linda Mabaso and non-executive directors Vusi Nkonyane and Yasmin Forbes had quit and that their replacements will be announced soon. Garry Pita resigned as chief financial officer last month, citing health reasons, and Mark-Gregg McDonald was appointed to the post in an interim capacity.
South African Airways
The state-owned carrier has lost money for the past six financial years, leaving it desperately short of cash. It’s appealed to the government for 5 billion rand ($405 million) to cover immediate costs and warned it will struggle to make 9.2 billion rand in debt payments due March 2019. This follows the state transferring funds to the airline in September to avoid a default on debt to Citigroup.
The government overhauled SAA’s board in October, with Chairwoman Dudu Myeni, who ran Zuma’s charitable foundation, among those to be replaced. The following month Vuyani Jarana, a former executive at wireless carrier Vodacom Group Ltd., was appointed as CEO. He’s in the early stages of a turnaround plan to enable SAA to break even by 2020 and ease dependency on the government.
Chief Financial Officer Phumeza Nhantsi and Musa Zwane, who served as acting CEO for two years, were suspended in March after the Auditor-General found that SAA failed to properly value assets or correctly record wasteful expenditure.
Passenger Rail Agency of South Africa
The commuter-rail service has stumbled from one management crisis to the next, and a report by the nation’s graft ombudsman revealed systemic corruption at the agency. The main opposition party has laid criminal charges against its former chairman, Sfiso Buthelezi, and ex-CEO Lucky Montana in connection with their role in concluding irregular contracts. They both deny wrongdoing.
The government last month appointed a new interim board headed by chairwoman Khanyisile Kweyama to run the agency for a year and Simo Lushaba was named interim CEO.
The Central Energy Fund
The fund, which oversees South Africa’s energy assets, has been embroiled in a controversy over a 2015 decision to sell 10 million barrels of oil reserves held by its Strategic Fuel Fund when prices languished near an eight-year low. While the SFF initially described the transaction as a stock rotation, the CEF filed an affidavit in March to declare the $280 million sale to traders, including Taleveras Group and joint ventures of Vitol Group and Glencore Plc., invalid.
The deal isn’t the only problem confronting the CEF. It oversees PetroSA, the national oil company, which has experienced management turmoil and has posted losses in the each of past four financial years.
Energy Minister Jeff Radebe said Thursday he will deal with governance issues at the CEF and PetroSA, and that the Boston Consulting Group is reviewing their assets.
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